Bitcoin’s vagabond days may be drawing to a close.
The IRS on Tuesday issued a notice saying it would treat virtual currency such as bitcoin as property for federal tax purposes. “General tax principles applicable to property transactions apply to transactions using virtual currency.”
Bitcoin users who have operated largely without government oversight since the digital currency’s introduction in 2009 now have to think about tax implications and reporting.
They may be subject to capital gains taxes, in contrast to individual traders in international currency markets, who treat gains and losses as real income when filing tax returns.
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The bitcoin decision has a number of implications laid out by the IRS in a set of frequently asked questions.
Wages paid to employees in virtual currency are taxable to the employee. An employer must report these on a W-2 form. And they are subject to federal income tax withholding and payroll taxes.